U. S. Securities & Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from _______ to _______
Commission file Number 0-11596
ExperTelligence, Inc.
(Exact name of small business issuer)
California 95-3506403
(State of incorporation) IRS Employer Identification number
203 Chapala Street, Santa Barbara, CA 93101
(Address of principal executive offices)
(805) 962-2558
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES NO
X
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practical date.
Class Outstanding at June 30, 1998
Preferred stock, no par 159,244
Common stock, no par 1,472,621
<PAGE>
ExperTelligence, Inc.
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet at June 30, 1998 and September 30, 1997 3
Statement of Operations for the 3 and 9 months period
ended June 30, 1998 and June 30,1997. 4
Statement of Cash Flows for the 3 and 9 months period
ended June 30, 1998 and June 30, 1997. 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 7
PART II - OTHER INFORMATION
Other information 9
<PAGE>
<TABLE>
<CAPTION>
ExperTelligence, Inc.
Balance Sheets
at 6/30/98 at 09/30/97
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 60,621 $ 27,465
Accounts receivable, net 339,773 271,312
Costs and estim uncompleted
contracts 0 0
Inventory 58,779 65,178
Prepaid exp and other current
assets 64,009 28,083
Deferred tax asset-current 82,250 110,000
Total current assets $605,432 $502,038
Product development costs, net 817,055 820,133
Property and equipment, net 48,503 53,947
Deferred tax asset-noncurrent 328,000 328,000
Total assets $1,798,990 $1,704,118
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $30,199 $33,174
Accrued vacation 62,202 57,413
Deferred revenue 0 0
Line of Credit 0 0
Other accrued expenses 0 0
Total current liabilities $92,401 $90,587
Long term debt 0 0
Stockholders' equity:
Preferred stock, no par value.
Authorized 1,000,000 shares;
outstanding and 159,244 shares $318,487 $318,487
as of June 30, 1998 and
September 30, 1997
Common stock, no par value.
Authorized 2,000,000 shares;
issued and outstanding
1,472,621 shares as of
June 30,1998 and
September 30, 1997 $3,653,627 $3,653,627
Retained earnings
(Accumulated deficit) $(2,265,525) $(2,358,583)
Net stockholders' equity $1,706,589 $1,613,531
Total liabilities and stockholders
equity $1,798,990 $1,704,118
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC.
STATEMENTS OF OPERATIONS
For the three months For the nine months
ended June 30,1998 ended June 30, 1997
(unaudited) (unaudited)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $257,367 $136,388 $787,027 $734,844
Operating costs
and expenses
Cost of Sales 80,069 62,240 239,243 140,239
Advertising & Promotion 1,125 15,270 8,254 99,950
General &
Administration 146,068 184,811 372,245 532,836
Research &
Development 26,406 36,231 95,657 141,534
Total operating costs
and expenses $253,668 $298,552 $715,399 $914,559
Profit/(loss) from
operations 3,699 (162,164) 71,628 (179,715)
Other expense (income)
Interest expense 610 62 2,154 270
Interest income (1,003) (2,695) (2,135) (10,200)
Gain/Loss on Fixed Assets 0 0 0 0
Income Tax 0 0 800 800
Deferred Tax Expense 3,850 (53,262) 27,750 (55,013)
Other 0 0 0 0
Total other expense(income) $ 3,457 $ (55,895) $28,569 $64,143
Net income (loss) $ 242 $(106,269) $43,059 $(115,572)
Net income (loss)
per share $.00 $(.06) $.03 $(.07)
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION
EXPERTELLIGENCE, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the three months ended For the nine months ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)
for the period ending
June 30, 1998 and
June 30, 1997 $ 242 $ (106,269) $ 43,059 $(115,572)
Adjustments to reconcile
net income (loss) to net cash
used by operating activities:
Depreciation & amortization 18,527 5,482 53,865 29,696
Decrease (increase) in
accounts receivable (125,273) (60,411) (68,461) 3,925
Decrease (increase) in
inventory 2,961 4,486 6,398 (1,142)
Decrease (increase) in
prepaid expenses (20,157) 20 (33,704) (13,971)
Decrease (increase) in other
current assets (2,222) 0 (2,222) 0
Increase (decrease) in accounts
payable & accrued expenses (1,664) (44,337) 1,814 6,157
Increase (decrease) in
deferred revenue 0 (6,500) 0 (26,000)
Total adjustments $127,828 $(102,485) $(42,310) $(2,560)
Net cash provided (used)
by operating activities $(127,586) $(207,529) $ 749 $(118,132)
Cash flows from investing activities:
(Increase) decrease in product
development costs $(8,198) $ (28,759) $(35,838) $(340,118)
Purchase of property and
equipment (2,080) (1,277) (9,505) (9,614)
Decrease in Deferred Tax
Assets 3,850 (53,262) 27,750 (55,013)
Decrease in other assets 0 0 0 0
Net cash provided (used) by
investing activities $ (6,428) $ (83,298) $(17,593) $(404,745)
Cash flows from financing activities:
Repayments of notes to
related parties 0 0 0 0
Repayments of other
long-term debt 0 0 0 0
Proceeds from issuance of
common stock 50,000 0 50,000 160,000
Net cash provided (used)
by financing activities 50,000 0 50,000 160,000
Net increase (decrease )
in cash $(84,014) $(290,827) $33,156 $(362,877)
Cash and cash equivalents
as of beginning of period $144,635 $451,372 $27,465 $523,422
Cash and cash equivalents as
of period end $ 60,621 $160,545 $60,621 $160,545
</TABLE>
<PAGE>
ExperTelligence, Inc.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly, ExperTelligence,
Inc.'s financial position as of June 30, 1998 and results of operations and
changes in financial position for the three and nine months ended June 30,
1998.
The accounting policies followed by the Company are set forth in Note 1 of
the ExperTelligence, Inc. Annual Report to Stockholders September 30, 1997
and are incorporated by reference.
2. Fixed assets are comprised of the following :
<TABLE>
<CAPTION>
6/30/98 09/30/97
<S> <C> <C>
Furniture & Fixtures $33,982 $33,983
Purchased Software 9,662 8,929
Equipment 382,259 373,486
Total 425,903 416,398
Less : Accumulated depreciation 377,400 362,451
$ 48,503 $ 53,947
</TABLE>
3. The results of operations for the three and nine months period ended
June 30, 1998, are not necessarily indicative of the results to be expected
for the full year.
4. Primary earnings per share are based on the weighted average number
of common stock and equivalents outstanding during the period.
5. At September 30, 1997, the Company had the following approximate net
operating loss carryforwards available to reduce future Federal income
taxes:
<TABLE>
<CAPTION>
Federal Federal State State
Expiring NetOperating Tax NetOperating Tax
September30 Losses Credits Losses Credits
<S> <C> <C> <C> <C>
1998 - - 49,000 -
1999 28,000 56,000 - -
2000 487,000 30,000 - -
2001 390,000 - - -
2002 309,000 - 275,000 -
2003 125,000 - - -
2004 - 6,000 - -
2005 614,000 30,000 - -
2006 481,000 39,000 - 9,000
2007 68,000 14,000 - 16,000
2008 - 10,000 - -
2009 - - - -
2010 - 1,000 - -
2011 - 4,000 - 8,000
2012 551,000 - - -
$3,053,000 $190,000 $324,000 $33,000
</TABLE>
SFAS 109 was adopted as of October 1, 1993. The Company believes
that the net effect to the tax provision and deferred taxes will not
materially differ from the amounts presented in the accompanying
financial statements due to the available Federal tax net operating loss
carryforwards.
<PAGE>
ExperTelligence, Inc.
MANAGEMENT's DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company notes that, except for the historical information contained
herein, the matters discussed below contain forward-looking statements
subject to risks and uncertainties that may cause the Company's actual
results to differ materially. Such risks and uncertainties include, but
are not limited to, various important competitive and technological
factors such as pricing pressures; as well as customers opting to
upgrade to newer or more fully featured products; changes in customer
order patterns, manufacturing considerations, including the maintenance
of margins in a declining-price environment as well as risk of inventory
obsolescence due to shifts in market demand and new product
introductions; and other risk factors listed from time to time in the
Company's reports filed with the Securities and Exchange Commission,
including, but not limited to, the report on Form 10-K for the year
ended September 30, 1997. The Company's financial disclosures can be
accessed at its website http://www.expertelligence.com/exgp/.
OPERATIONS
ExperTelligence, Inc. (the Company) designs, develops, markets and implements
software products for Internet based business applications. Additional
information on the Company's products and consulting services can be found
at its website http://www.expertelligence.com/. The Company plans to expand
its scope of business activities including the introduction of WebData(TM), a
portal to web databases, and other Web Services. The Company entered
into a strategic marketing alliance with Saatchi & Saatchi, PLC ("Saatchi")
in August 1998 which includes Saatchi's provision of strategic planning
and marketing services related to WebData and the Web Services.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIOD ENDED
JUNE 30, 1998 AND 1997
Revenues for the three and nine month period ended June 30, 1998 were
$257,367 and $787,027, up 89% and 7% respectively, from a comparable
figure from the prior year of $136,388 and $734,844.
Revenues for the three months ended June 30, 1998 were the result of
consulting services, software licenses and software sales. It includes
$130,000 revenue from a major software company.
Cost of sales for the three and nine month period ended June 30, 1998 were
$80,069 and $239,243 up 129% and 170% compared to prior year periods of
$62,240 and $140,239 reflecting increased time spent by personnel on
consulting contracts.
Advertising and promotion expenses for the three and nine month period ended
June 30, 1998 were $1,125 and $8,254 down 93% and 92% compared to
prior year totals of $15,270 and $99,950 respectively. This reflects
management's decision to decrease advertising, promotion and marketing.
General and administrative expenses for the three and nine month period ended
June 30, 1998 were $146,068 and $372,245 down 21% and 30% from comparable
figures for the prior year of $184,811 and $532,836 respectively. These
numbers reflect a shift in salaries to cost of sales, the reduction of two
officers and management's decision to decrease overall spending.
Research and development expenses for the three and nine month period ended
June 30, 1998 were $26,406 and $95,657 down 27% and 32% from comparable
figures for the prior year of $36,231 and $141,534 respectively. This
reduced spending is indicative of the Company's shift from developing
software to consulting.
Profit from operations for the three and nine month period ended June 30,
1998 were $3,699 and $71,628 up from losses for the prior year
of $162,164 and $179,715. These profits are the result of management's
diligent efforts to review and make the necessary changes to reduce expense.
Deferred tax expense decreased and increased proportionately with income
for the three and nine months ended June 30, 1998 and 1997 respectively.
These numbers are a result of the change in accounting policy which took
effect FY94, and are not actual cash expenses.
LIQUIDITY
At June, 1998 the Company reported working capital of $513,031 which was up
25% from $411,451 at September 30, 1997, due to an increase in cash and
accounts receivable. Net stockholder's equity of $1,706,589 was up 6% from
$1,613,531 on September 30, 1997.
Accounts receivable of $339,773 was up at June 30, 1998 from the
September 30, 1997 figure of $271,312. By August 14,1998 over 50% of the
receivables had been collected. It is believed that all receivables will
be collected.
Net product development costs were $817,055 and $820,133 for the
periods ending June 30, 1998 and September 30, 1997 respectively. This
reflects the shift in salaries from software development to contract
services. Management continues to believe in the commercial viability of
the products for which research costs are capitalized.
Accounts payable was $30,199 at June 30, 1998 compared to $33,174 at
September 30, 1997.
Accrued vacation was $62,202 at June 30, 1998 compared to $57,413 at
September 30, 1997. Both figures represent less than 3% of total
assets.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
The Company sold $50,000 of common stock through a private placement in June
1998. The shares had not been issued as of June 30, 1998. The $50,000
investment has been classified as paid in capital and is included in the
Retained Earnings ( Accumulated Deficit) line on the balance sheet. The price
per share was $3.00. The total shares sold were 16,667.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
Stephen Owens, President of Expertelligence, Canada, resigned May 22, 1998.
As disclosed in the 8K filed on December 17, 1997, the Company entered into
an agreement to acquire Electronic Offsite Services. The acqusition had not
occurred as of the filing of the June 30, 1998 10Q.
Item 6 - Exhibits and Reports on Form 8-K
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ExperTelligence, Inc.
(registrant)
August 14, 1998 Denison Bollay, President and Chairman of the Board
(signature)
August 14, 1998 Robert Reali, Director
(signature)
August 14, 1998 Tami Bollay, Director
(signature)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 60,621
<SECURITIES> 0
<RECEIVABLES> 339,773
<ALLOWANCES> 0
<INVENTORY> 58,779
<CURRENT-ASSETS> 605,432
<PP&E> 425,903
<DEPRECIATION> 377,400
<TOTAL-ASSETS> 1,798,990
<CURRENT-LIABILITIES> 92,401
<BONDS> 0
<COMMON> 1,472,621
0
159,244
<OTHER-SE> 1,706,589
<TOTAL-LIABILITY-AND-EQUITY> 1,798,990
<SALES> 257,367
<TOTAL-REVENUES> 257,367
<CGS> 80,069
<TOTAL-COSTS> 253,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 610
<INCOME-PRETAX> 3,699
<INCOME-TAX> 3,850
<INCOME-CONTINUING> 242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
